Canadian Guide to Buying a Home in Arizona

What restrictions are there for Canadian buyers purchasing homes in Arizona?

There are no restrictions on foreign nationals buying U.S. or Arizona property that I know of.

Just be very sure to use a lender who has experience in lending to foreign nationals.

Your biggest "closing cost" will likely be the fees you pay to your lender. Those fees vary greatly from lender to lender and from one loan program to another. Most Canadians are paying all cash so they are paying no loan fees. You will also pay for most or all of these: a home inspection, a termite inspection, an appraisal, an escrow fee, title insurance, a county recording fee, and if the home has a Homeowners' Association (or HOA) additional HOA fees may apply. In addition, at closing you will pay for some future expenses in advance. These "pre-paids" may include property taxes and homeowner's insurance.

Attorneys are not typically involved in Arizona residential real estate transactions so that is a expense you will not have in Arizona.

Property taxes are very LOW in Arizona. For example, a luxury home for sale in Paradise Valley for $2,300,000 paid only $7,671 in property taxes.

A luxury 2-bedroom condo with spectacular mountain and golf course views in the Troon area of that is for sale for $599,000 paid only $2,364 in property taxes

A 2-bedroom condo in McCormick Ranch in Scottsdale that is for sale for $285,900 paid only $1,160 in property taxes.

In addition, Arizona does not have a two-tier property tax system like California and Florida where new homeowners pay more in property taxes than other homeowners. A new Canadian homeowner will pay the same property tax rate in Arizona as their American neighbors next door.

Be aware of homeowner association (HOA) fees, they can vary greatly. All condos and many single family homes belong to homeowners' associations and must pay the HOA fees.

Will Canadians buyers be subject to capital gains tax when they sell their Arizona property?

Yes, foreign nationals are subject to U.S. capital gains taxes on real estate sales. And because the U.S. Internal Revenue Service (IRS) can't easily go after foreign nationals to collect this capital gains tax, there are special U.S. tax "withholding" requirements when foreign nationals sell real estate. The Foreign Investment in Real Property Tax Act (FIRPTA) imposes U.S. tax on income and gains from real estate owned by "nonresident aliens" at the same graduated rates applicable to U.S. persons.

Typically, when a nonresident alien sells U.S. real estate, 10 percent of the purchase price will be "withheld" for potential taxes. The seller may in fact owe no taxes� or the seller may in fact owe more than the 10 percent withheld. The seller will want to file a U.S. income tax return at the end of the year so any overpayment to the IRS will eventually be returned to the nonresident alien seller. Also of interest, many homes that are sold for less than $300,000 are not subject to this 10 percent withholding, although the seller is still obligated to pay the full amount of any capital gains tax due. Interested buyers should contact an accountant or lawyer for details.

Will Canadians pay tax on rental income generated from Arizona investment property?

This is complex but yes, the IRS will tax income from real estate owned by nonresident aliens at the same graduated rates applicable to U.S. persons.

Frequently Asked Questions